The Airport’s Misguided $3 Million Subsidy to British Airways

Summary: On July 25, Pittsburgh International Airport (PIT) officials announced that British Airways would begin nonstop flights from Pittsburgh to London’s Heathrow airport. $3 million in subsidy is being provided to the airline to offer service at PIT.  This Policy Brief describes the deep flaws in the subsidy of British Airways.

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British Airways is set to begin flights in April 2019 with one flight per day on Tuesdays, Wednesdays, Fridays and Saturdays. Flights will arrive at 8:15 p.m. and depart at 9:50 p.m. PIT will become the 27th U.S. destination for the carrier and is by far the smallest airport in terms of enplaned passengers (ranked 47th in the U.S. in 2017).

To get the airline to resume operations at PIT after a long hiatus the Airport Authority will pay British Airways $1.5 million each year for two years. This after handing WOW Air $800,000 to fly to Iceland and on to Europe and $500,000 to Condor for seasonal flights to Germany. Note, too, that American Airlines offers one-stop service to London through Philadelphia and Charlotte with several flights to choose from each day. Those airports are American Airlines hubs and can gather travelers from many cities to fill planes flying to Heathrow. Then, too, American is already posting fares at PIT to match the British Airways fares for next April.

The obvious question—will the British Airways service create new passengers at the airport or take them away from existing flights, some of which are receiving airport subsidies? According to the British Airways spokesperson, there is pent-up demand for travel to Europe. If that’s the case, why are subsidies necessary and why haven’t U.S. airlines jumped at the chance to offer nonstop flights to serve the pent-up demand?  Something does not add up here.

Indeed, the only possible justifiable reason to subsidize any carrier is to create demand by foreigners to fly to PIT. Subsidizing passengers to fly out of the country on a foreign carrier to spend money as tourists abroad is folly.

And that leads to the worst part of the airport’s presentation announcing the subsidy arrangement with British Airways. Airport executives said the authority estimates there will be a $57 million economic impact resulting from the British Airways presence.  To be clear, the economic impact estimates were provided in a study prepared by the EDR Group of Boston.

Apparently, most of the estimated impacts in the EDR study are based on assumptions about non-U.S. passengers using the flights. The study does not provide figures for spending on baggage handling, gate services, or purchases of fuel, food and beverages. EDR assumes 40,562 arriving and departing passengers annually on 234 roundtrips (81 percent occupancy).  Presumably those figures are from British Airways. Of those, 29 percent (11,763) are assumed to be from the United Kingdom or other Europeans whose destination is PIT and are not connecting to another city. How the 29 percent figure was determined is not explained.

Spending by the UK/European visitors in the Pittsburgh region seems to account for the bulk of the economic impact of the carrier’s flights. All told, the study predicts the 234 yearly roundtrips will lead to 564 added jobs in the 10-county Southwestern Pennsylvania region with average worker income of $37,776 and a total labor income boost of $21,306,000. This will be accompanied by a value-added increase of $33,879,000 according to the study. The $57 million economic impact figure quoted by airport executives is for gross sales and not net value produced.

Before evaluating the study estimates in more detail, it is important to note three large potential differences in economic impact depending on passenger count assumptions. Obviously, the total of 40,562 passengers matters because it will determine the amount of services needed at the airport. The assumption of 29 percent (11,763) non-U.S. passengers is critical because that drives the bulk of the local economic impact. And third, the British Airways passenger count assumptions do not factor in the percentage of travelers that would have flown other airlines to and from England or Europe.

Note that most of the projected new jobs in the study will be at restaurants and hotels as a result of the increase in foreign visitors to the region. Bear in mind, however, that 11,763 visitors to the region over 365 days is an average of only 33 per day.  Even if they stay seven days on average that represents only 82,000 hotel or other accommodation room nights. The city alone has around 2.6 million room nights available per year and the rest of the region likely has at least half that many. Thus, UK/European visitor stays would make up only two percent or so of the region’s available room nights.

And in that regard, it is highly improbable that a two percent uptick in room nights would create a commensurate number of new hospitality jobs. Indeed, stats from “The Economic Impact of Travel and Tourism in Pennsylvania 2016”, prepared by Tourism Economics a division of the Oxford Economics Company, show that for Allegheny County in 2016, on average, $143,297 was spent by tourists/travelers for each job in the tourism related industries. If that figure is still anywhere close to the present ratio, the 11,763 visitors would have to spend over $80 million, or $7,000, each to produce 564 new jobs.

What’s more, most newly created jobs resulting from these foreign travelers would likely be low-paid hotel room attendants and restaurant wait staff for which pay levels are about $23,000, a far cry from the $37,776 pay level used in the EDR report. The figure EDR used for average worker pay would include salaries of managers, sales reps, engineers, security, repairmen, etc. It seems extremely unlikely that additional staff in these higher paid categories would be needed to handle an average of 224 people per night—assuming seven-day stays per visitor—at all the hotels in the 10-county region or even if they are concentrated in Allegheny County hotels.

And it gets worse. There is no estimate of how many of the 28,800 local passengers will be additional travelers to the UK/Europe or will be passengers that would have traveled on other airlines such as the already subsidized and very inexpensive WOW Air or from folks who would have flown one stop on American through Philadelphia or Charlotte—or United through Newark or Dulles. But it is almost certain that a large percentage will be passengers that would have taken other carriers. Likewise, it is not known how many Europeans will use British Airways instead of American or some other airline to come to Pittsburgh. If as few as half of Pennsylvania travelers to Heathrow are net new passengers and half of UK visitors are net new travelers that would mean the net effect of British Airways flights would be 15,000 more locals headed to London with 5,900 additional UK or other Europeans coming to the Pittsburgh area. Other assumptions about the ratio of new additional to total passengers could be made but this one will serve to illustrate the point.

If 5,900 is a better measure of the net additional UK/Europeans visiting Southwestern Pennsylvania, then the impact on the economy will be far lower than even a realistic estimate of the impact of 11,763 visitors, which the EDR estimate clearly was not.   Consider, too—assuming foreign visitors to Southwestern Pennsylvania spend about the same as local travelers spend abroad—that the outflow of dollars from the region to foreign-owned enterprises caused by 28,800 local travelers flying to London and perhaps visiting other European destinations will be far greater than the inflow of money associated with 11,763 foreign visitors to the region.  Using the EDR estimate of 29 percent of the passengers to be UK/Europe residents—which seems high—then U.S. residents make up 71 percent, a ratio of almost 2.5 to one. Thus, spending by Pennsylvania travelers would be 2.5 times greater than foreign British Airways travelers to the Pittsburgh region. That is not a win for the region. Indeed, it is just the opposite. Moreover, if the percentage of UK/European travelers turns out to be only 20 percent of total, the ratio of U.S. spending abroad to foreign spending in the region rises to four to one. And so forth if the percentage of foreign passengers is even lower.

Then too, the money spent by local residents to fly on British Airways will end up in that airline’s bank account.  And for that matter so will all the fares purchased by UK/European passengers. Using British Airways’ estimate of 28,800 Southwestern Pennsylvanians (and maybe some from out of the area) who will pay a low-side estimate of $1,000 or more for the trip means British Airways will collect $28,800,000 in fare revenue from area residents. And those dollars are leaving the region even before the travelers land in England. Note that British Airways’ basic economy fares at $716 will be available but these fares are accompanied by fees for luggage. And, the passengers cannot select their seats and must board last. Prices are significantly higher for other seat classes. The $1,000 figure is used for demonstration purposes as an estimate of average fares but the actual average is likely to be significantly higher and the regional outflow of dollars higher as well.

Even if half the passengers would have flown other airlines absent the arrival of British Airways, the British carrier would still collect $28,800,000 in fare revenue. And if average fares for the other carriers are close to British Airways, they would lose almost $15 million in revenue. Obviously, any reductions in U.S. airline revenue will lower the economic benefits of the arrival of British Airways.

The fact that PIT is not a major hub and that the area is not world famous as a tourist destination—certainly not a on a scale such as Orlando, Miami, Las Vegas, Tampa, Phoenix or even New Orleans—makes it harder to induce UK/Europeans to fly to PIT as tourists.

All these factors make the airport’s $3 million misguided taxpayer investment unlikely to ever pay for itself unless British companies with significant investment and potential employment that otherwise would not have located facilities in the region decide to place operations in Southwestern Pennsylvania.  And in the meantime, with the most probable effects of the subsidy being to damage competitors while increasing the net outflow of resources from the region, it is hard to see any upside to handing over tax dollars to the airline.

Will Interest in Land Banks Continue to Grow?

Summary: A new law amends the statutory language of the land bank law to allow redevelopment authorities to carry out the functions of a land bank, which is a public entity that is empowered “to facilitate the return of vacant, abandoned and tax-delinquent properties to productive use.”

When we first wrote about land banks in 2014 there were four in existence in Pennsylvania. Today there are 22. The ones that have been operating for a few years have been quite active—last year’s annual report for the Westmoreland County Land Bank (created in December 2013) shows that 91 properties had been acquired and 55 sold since 2014; in 2017 the land bank in Schuylkill County (created in September 2015) earned $46,000 from property sales according to its audit; and as of last year the Philadelphia Land Bank (created in December 2013) had over 2,000 properties worth $25 million held for sale.

Operating expenses ranged from a low of $27,000 in Lackawanna County (created in June 2015) to over $2.6 million in Philadelphia. A review of audits shows that the majority of expenses are related to administrative, accounting, advertising, insurance and legal functions. The source of operating and non-operating revenues are quite varied with membership contributions, foundation and government grants, property sales, and shares of property tax revenues on properties that have been sold and are now producing property tax revenue are present in the statements of revenues, expenditures and changes in net position in the land banks. Land banks submitting audits that did not engage in any activity and did not collect any revenue or expend any funds noted that fact.

Despite the sharp increase in the number of land banks it still takes time and expense to establish one. Initially a local government has to pass an ordinance, the Department of State has to issue a certificate of incorporation and by-laws have to be drafted before the land bank gets involved in thinking about property transactions.

Four years ago we wondered why the task would not be assigned to a redevelopment authority instead of creating another quasi-governmental body. Based on a search of Department of State entities, there are over 100 redevelopment authorities in existence and all of them are dedicated to stemming the growth of blight.

Recently approved legislation now known as Act 33 of 2018 fulfills that by allowing land bank jurisdictions in all counties except for Philadelphia and Allegheny (where there are three land banks total) to designate a redevelopment authority to do the job a separate land bank would perform.

If a redevelopment authority was designated as such, it would have to follow several key provisions of the land bank law, finances would have to be accounted for in a separate fund and in exercising the land bank’s powers, a redevelopment authority could not use eminent domain to acquire property. That would still have to come through donation, purchase and by tax sale—and only within the boundaries of the land bank jurisdiction. Real property and income of a land bank are exempt from state and local taxes. It can then dispose of property it holds in a manner determined by the land bank. A redevelopment authority acting as a land bank could be dissolved in the same manner as a land bank currently inasmuch as it applied to the redevelopment authority’s land bank designation, not its entire corporate and politic existence.

In many of the operating land banks there is such an interwoven arrangement between the land bank and the redevelopment authority in regards to board membership and staffing that the act in some sense is legitimizing present practices. In the Southwestern Pennsylvania counties of Westmoreland and Washington, for instance, land bank board seats (five of seven in Westmoreland and five of five in Washington) are reserved for the appointees serving on the redevelopment authority board. Both land banks are staffed by employees of the redevelopment authority.

In places where there is no land bank currently, the option of designating a redevelopment authority to do the job could be utilized under the new law. Only 11 counties do not have a redevelopment authority (there may be a municipal redevelopment authority in these counties, however) and in 10 of those there is no land bank. Venango County has a land bank but no redevelopment authority. Its ordinance states that staffing can be provided by contract or memorandum of understanding with a municipality if it does not have its own employees.

Land banks might be a useful tool in helping turn around blighted, run down properties. But in light of the powers they have been given, they must be held to account. The law requires an annual audit and activity report, but what’s to ensure that the parties that receive these documents are reading them? Monitoring tax increment financing, the ICA in Pittsburgh and the initial years of the Commonwealth Financing Authority should serve as reminders of the need for follow up.

As part of the reporting requirements there should be metrics that evaluate the success of the land banks. For example, what percentage (or number) of long time tax delinquent run down properties are being returned to the tax rolls? Is the land bank operating efficiently in terms of costs relative to value being produced? Are the land banks financially sound in terms of liquidity and their net asset and cash flow situations? Finally, are the activities of the land bank successful in improving the neighborhoods where they have acquired property?

The Allegheny Institute will continue to look at and analyze land banks in the future to chronicle successes and note any shortcomings.

Shale Gas Impact Fees Jumped in 2017

Summary: Impact fees from drilling in Pennsylvania’s shale formations jumped in 2017 by 21 percent over 2016.  The impact fees, authorized by Act 13 of 2012, are distributed not only to select state agencies and to municipalities and counties hosting such wells, but to all counties across the commonwealth.  Thus far more than $1.43 billion has been collected.

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In late June the Pennsylvania Public Utility Commission (PUC) reported that $209,557,300 in impact fee revenues was collected from owners of unconventional natural gas wells in 2017.  The 2017 figure represents a jump of 21 percent over 2016’s collections.  It reverses a three-year trend of declining revenues from the 2013 peak of $225.75 million. The 2016 tally of $173.26 million represents the lowest point in the seven-year history of the impact fee.  To date more than $1.43 billion in impact fees have been paid.

Act 13 of 2012 authorized an impact fee to be assessed on all unconventional wells (those drilled in the shale formations using the hydraulic fracturing method) drilled in the state (retroactively covering 2011 as the first year).  The fee follows a schedule based on two factors:  the trading price of natural gas on the New York Mercantile Exchange (the spot price representing dollars per million Btu) and the age of the well.  Older wells will presumably produce less gas over time as the pool of gas is expended so the fee schedule lowers the amount they pay as they age.

One of the reasons impact fee revenues slid from 2014 through 2016 was a glut of natural gas due to a rise in production from Marcellus and Utica shale formations. The resulting over supply contributed to the drop in the market price that fell from an average yearly price of $4.13 in 2014 to $2.62 in 2016, a drop of 37 percent.  This plunge in gas price led to a decline in the number of new wells being drilled.  In 2014 there were 1,371 wells started, the second highest behind 2011 (1,956).  In 2016 only 504 wells were started—a decline of 63 percent since 2014.  Thus the number of aging wells outweighed newer wells, which would presumably pay a higher impact fee, as the pace of drilling had fallen off.

However, 2017 saw the gas price move up to an average yearly price of $3.02, 15 percent over 2016’s average. The rise in gas price encouraged a major rise in new wells with 810 drilled in 2017, a 61 percent surge compared to 2016. In total, there were 8,518 unconventional wells representing an increase of 4.9 percent over the total reported for 2016.

It is too early to tell if this uptick in prices, drilling activity, and the subsequent jump in the impact fee collection, is the start of a new trend, but it is certainly welcome news to those who benefit from this revenue stream.

Act 13 specifies how the impact fee will be distributed.  State agencies get the first $10.5 million off the top.  These agencies include the PUC; Department of Environmental Protection; the Fish and Boat Commission; the Emergency Management Agency; Office of the State Fire Commissioner and the Department of Transportation.  Also another $7.75 million is given to the State Conservation Commission for county conservation districts.  For the 2017 distribution, that leaves $114.78 million for counties and municipalities with the remaining $76.52 million for the Marcellus shale legacy fund (section 2315.a1 of Act 13).

From the legacy fund, $15.3 million is allocated to the Commonwealth Financing Authority (CFA), an agency whose purpose and impacts we questioned in Policy Brief Vol. 14, No. 8.  Since 2012, the CFA has reaped $87.7 million in impact fee money.  Other components of the legacy fund go to county rehabilitation of greenways ($11.48 million); highway bridge improvements ($19.13 million); water and sewer projects ($19.13 million); a hazardous sites cleanup fund ($3.2 million) and an environmental stewardship fund ($7.65 million).  Since inception, the Marcellus shale legacy fund has collected more than $515 million to be distributed among these causes.

All counties across the commonwealth receive money from the Marcellus shale legacy fund, whether or not they host any unconventional wells, from the county rehabilitation of greenways fund (section 2315.a1.5).  The amount received is based on the county’s share of statewide population.  For example, Philadelphia County has a population of 1.57 million or 12.26 percent of the state’s population and thus receives the largest share of greenways monies ($1.39 million).  In fact, since the implementation of Act 13, Philadelphia County has received over $9.3 million.

However, a minimum amount of $25,000 is given to counties with small populations (for example, Fulton, Juniata and Montour Counties).  None of these counties sit atop the Marcellus shale formation and thus do no host a well yet benefit from the legacy fund, and by extension, the impact fee, having received $175,000 each over the time period.  As mentioned above, all 67 counties split $11.48 million in 2017 and since the beginning have shared $65.8 million.

The focal point of the impact fee is to tax the drilling industry and then return the money to those communities that are most impacted by the activity.  Thus those counties and municipalities impacted the most split the largest share of the money ($114.78 million) as outlined by Act 13 (section 2314.d).  Of this amount, more than $39.52 million in 2017 was allocated to counties hosting unconventional wells, with the rest dedicated to municipalities hosting, or being in proximity to, such wells.

For those counties hosting an unconventional well, their allocation is determined by the number of wells they host.  For example, the county with the most unconventional wells in 2017 was Washington County (1,528) and as a result collected the largest amount of money ($7.09 million) from this section of Act 13.  The runner-up is Susquehanna County (1,274 wells), earning $5.91 million.  As two of the top counties with wells, Washington has collected more than $38.85 million over the years while Susquehanna has collected more than $35.53 million.  Allegheny County, with only 125 eligible wells, a fraction of the total, has received $2.15 million over time.  As largely rural counties, Washington’s population is 207,981 and Susquehanna’s is just 40,862.  These totals are quite significant and most likely larger than if the state would switch to a severance tax instead and the money was allocated from Harrisburg at the whim of those viewing the shale industry as a cash cow for their own pet projects.

And of course that was the intent of Act 13—to place a fee (tax) on those drilling in the Marcellus and Utica shale formations using the technique of hydraulic fracturing (unconventional wells).  The money would then bypass the political machinations of Harrisburg and send the money directly to those counties and communities most impacted by the activity surrounding the drilling and to those state agencies that would also be impacted from the activity.  The money distributed even has strings attached as to how it can be spent such as on public infrastructure construction, storm water/sewer systems, emergency preparedness/public safety and environmental programs, among others.

Yet the clamoring for a severance tax continues.  But what those favoring a severance tax fail to consider is that not only do drillers pay the impact fee, they also pay the assorted business taxes levied by the commonwealth and pay royalties to leaseholders.  According to the Marcellus Shale Coalition president in a recent op-ed, that has amounted to $4.5 billion to date on top of the impact fees total of $1.43 billion.  The latest proposal from Harrisburg will leave in place the impact fee and couple it with a severance tax amounting to double taxation on the industry.

A severance tax has the potential to curtail production causing a reduction in these payments as drilling will likely be reduced or shifted to neighboring states that are also above the Marcellus and Utica shale formations.  The impact fee has struck a balance between holding drillers accountable for their activities and generating much needed revenues to those counties and municipalities most affected.

The U.S. and Pennsylvania Economies from 1990 to 2016: Massive Growth Rate Shift

Summary: Reflecting many adverse factors including business-inhibiting policies, the trend in the pace of economic growth in the nation and Pennsylvania weakened significantly in the first seven years of the new century and even further after 2008.  During the 2008 to 2016 period longer term gains as measured by increases in the nation’s real GDP from 10 years earlier slowed to half the norm set during the period 1970 to 2000. Fortunately, it appears business-friendly policy changes in regulations and taxes made in 2017 have begun to reinvigorate the economy.

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To begin, it is important to note that in the 20-year period prior to 1990 (1970 to 1990), U.S. real GDP grew at an annual average rate of 3.2 percent.  In light of the downturns in the mid-1970s and two recessions in the early 1980s resulting primarily from inflation spikes and the need for monetary restraint the growth rate over the period seems quite remarkable.

Indeed, average annual growth remained strong through the 1990s climbing at a 3.5 percent rate between 1990 and 2000.  However, since 2000 the U.S. economy moved to a much slower growth path and averaged only a 1.8 percent growth rate over the 16 years through 2016. After slowing to a 2.4 percent average between 2000 to 2007, real GDP from 2007 (the pre-recession high point) and 2016 climbed at its slowest rate for a comparable time period in the modern era posting an annual average rate for the nine years of just 1.3 percent.  Even more concerning is in the six years after the recession ended in 2010 through 2016, annual gains averaged only 2 percent and were far weaker than in the six-year periods following recessions in the 1980s and 1990s when yearly gains for the six-year post-recession period averaged 3.7 percent and 4.4 percent, respectively.

Indeed, calculating the change in each year’s real GDP from the 10-year earlier level and smoothing the series with a moving average to remove effects of recessionary slowdowns and the fast gains during recoveries shows a slowing in 10-year growth beginning in 2008 to a pace barely half its historic norm.

Similar to the pattern in the U.S., growth in Pennsylvania’s real GDP slowed from 2.6 percent annually over the 1990 to 2000 period to a 1.8 percent per year average from 2000 to 2007 and then slipped further to just 1.3 percent in the 2007 to 2016 time frame. In the post-recession period between 2010 and 2016 the annual pace averaged 1.7 percent, a significantly slower pace than the 1990 to 2000 growth. And while the slowdown pattern is similar to the nation, it is important to note that the commonwealth lagged behind the pace of U.S. GDP gains in each period. What’s more, from 1990 to 2016, the nation saw real output expand by 84 percent while Pennsylvania grew only 63 percent making the national gain over the period 33 percent faster than the state’s.

As for the Pittsburgh seven county MSA, a comparable period of analysis of real GDP is not possible since those data were not produced until 2001. It is noteworthy however that from 2001 to 2008 real GDP in the Pittsburgh MSA was basically flat, rising only 0.1 percent during the seven years. Contrary to the national pattern, output actually grew 4 percent from 2008 to 2010 while the U.S. and Pennsylvania had no net growth over the two years.  And from 2010 to 2016, the MSA had output gains averaging 2 percent per year, the same as the nation and faster than the state’s 1.7 percent. One possible explanation could be the advent of the Marcellus Shale gas operations.

Still, this must be viewed in the context of the very slow 1.1 percent per year average growth since 2001. This is much slower than the national rate of 1.8 percent and below Pennsylvania’s 1.4 percent during the period.

To be sure, the shift to much weaker national gains posted in the 2007 to 2016 period can be attributed to many factors but a lack of fiscal and monetary stimulus were certainly not among them. Working through the financial crisis created by subprime mortgages, massive increases in healthcare regulations including mandates and costs on businesses and individuals along with tighter regulations on the environment, financial activities and labor relations all figured prominently in acting as a drag on business formation, expansion and hiring during the period.

But there is another factor that undoubtedly had a major impact on output and employment growth throughout the 2000s. In the late 1990s the U.S. trade deficit in goods and services rose from $96.4 billion in 1995 to $372.5 billion in 2000. During that period, the trade deficit on goods climbed from $174.2 billion to $446.8 billion. And that was just the beginning. The goods and services gap increased further to $705.2 billion in 2008 as the goods gap rose to $821.2 billion. During the 2009-2010 recession the goods deficit shrank considerably but started to rise again as the economy began to recover. By 2016 it was up to $751 billion, still below 2008’s record level.

Meanwhile, real GDP nationally slowed from the healthy 3.5 percent per year pace in the 1990 to 2000 period to just 2.4 percent in the 2000 to 2008 period.  Jobs growth also shifted to match the slower output gains. In the decade of the 1990s private sector employment grew at an average yearly pace of 2 percent. However, from 2000 to 2008 private jobs managed only 0.4 percent yearly growth.  And from 2007 to 2016 grew only 0.6 percent per year despite stronger gains after 2010 through restored losses during the recession.

In Pennsylvania, private jobs rose an average of 1.2 percent per year from 1990 to 2000 but slowed dramatically to 0.25 percent over the next seven years to 2007 and only 0.4 percent from 2007 to 2016. Meanwhile, MSA private employment climbed 1.1 percent annually or about half the national rate in the 1990s. Between 2000 and 2008 jobs managed a tiny annual gain of 0.03 percent far below the national pace. Employment gains picked up after 2010 rising 0.8 percent annually through 2016 but less than half of the national rate.

In light of the massive increase in the goods trade deficit it is not a surprise that manufacturing jobs suffered the greatest losses over the last 20 years. After recovering from the early 1990s downturn and rising to 17.56 million jobs in 1998, manufacturing employment fell every year through 2010 shedding 6.03 million workers, 34 percent of the employment posted in 1998. With the economy recovering and the goods deficit falling for a couple of years before picking back up and stabilizing to just under $800 billion, there was a modest job gain of 824,000 from 2010 to 2016. Still, that left manufacturing employment 5.2 million below the 1998 mark.

Moreover, from 1997, just before manufacturing employment reached the highest level of the last 20 years, manufacturing value-added as a percent of national GDP has dropped from 16.1 percent to 11.6 percent in the fourth quarter of 2016.  Manufacturing supports jobs in many other sectors through its multiplier effects. Thus, it is not surprising that big declines in manufacturing’s share of output have had a slowing effect on overall employment gains.

Pennsylvania’s manufacturing employment count also suffered a big loss during the 1998 to 2010 period falling by 313,700 jobs or 36 percent. This is close to the 34 percent decline in U.S. manufacturing jobs in that period.  Pittsburgh MSA manufacturing jobs were steady in the 1990s but fell sharply from 2000 through 2010 losing 3.9 percent annually. Since 2010 there has been no net gain in the MSA’s manufacturing employment.

In both Pennsylvania and the U.S. there was a slow and very modest recovery in manufacturing employment from 2010 through the middle of 2016 that left the jobs count well below the pre-recession levels of 2007. Then in mid-2016 manufacturing jobs started to weaken somewhat both nationally and in the commonwealth. Fortunately however, manufacturing job gains in Pennsylvania and the U.S. returned in the second half of 2017 and have continued through June 2018. The U.S. gains have been more robust than Pennsylvania with 362,000 jobs added since December 2016.  U.S. factory jobs in June 2018 stood at their highest level since December 2008. Meanwhile, Pennsylvania’s June count is the highest posted for the month since June 2008.

The abrupt slowing in the U.S. long-term growth rate—as  measured by growth over 10-year spans— that began in 2008 appears to be showing signs of being replaced by a return to more normal historical levels but it will take some time to make up for the prolonged weakness.  An upturn in new business formation and increased business investment in the country and in the state will be key factors in the process of restoring a long-term growth rate more in line with the norms of the 30 years prior to the weaker growth since 2007. The business friendlier regulatory and tax climate recently put in place should prove extremely beneficial in fostering a sustained strengthening in the economy.

Pennsylvania will need to do far more than it has been able to do in the past to keep up with U.S. trends in output and employment. Regulations, labor laws and taxation that inhibit business expansion must be addressed.

How is the New School Funding Formula Affecting Allegheny County?

Summary: The 2018-19 fiscal year budget provides $6 billion “for payment of basic education funding to school districts.” This will be the fourth year in which basic education dollars above the amount budgeted for 2014-15 are allocated to districts based on a commission-designed funding formula. Close to $34 million of “new” money will be distributed through the formula to Allegheny County’s school districts. This Policy Brief reviews the district allocations based on the formula.

In June 2015 the Basic Education Commission released its final report on how to distribute the state basic education funds to the 500 school districts in Pennsylvania. The commission recommended a student-weighted funding formula for allocating basic education funds to the school districts. It is important to note that basic education funding is half of the state’s K-12 funding. For 2018-19 basic education funding is budgeted at $6 billion and the total amount of grants and subsidies for public schools will be about $12 billion.

A difficult issue faced the commission. It had to deal with the nearly two decades-long method of distributing basic education dollars known as “hold harmless,” given that moniker since funding for districts was never lowered from the previous year’s amount even if enrollment fell.

The commission noted many districts “would be unable to make operational adjustments or generate revenue from other sources to make up for the loss of basic education funding” if hold harmless was eliminated in one fell swoop. A total of $1 billion in 320 districts would ride on that shift.

The General Assembly dealt with “hold harmless” in Act 35 of 2016 by retaining the hold harmless provision on the funding levels through 2014-15 and applying the new student-weighted formula to future basic education dollars above that level.

For the 2018-2019 school year the basic education funding contains a mixture—the fixed $5.5 billion of hold harmless appropriation and $538 million of Act 35 formula dollars, a 10-to-1 ratio. Act 35 basic education funding has increased from $152 million to $538 million, or 253 percent, from 2015-16 to 2018-19.

The Act 35 dollars are allocated to districts based on a complicated calculation for each district. The student-weighted average daily membership is derived using the sum of weighted factors related to three-year average enrollment, poverty, English-as-a-second-language students, charter school enrollment and sparsity along with its median household income index and its local effort capacity index. Each district’s value is compared to the state as a whole to determine each district’s portion of the Act 35 funds.

What does the 2018-19 budgeted school funding mean for the 43 school districts in Allegheny County? The 43 districts had a combined ADM (average daily membership) of 146,776 based on the three-year moving average enrollment with districts ranging size from the Cornell’s 675 to Pittsburgh’s 26,736. A total of $479.5 million in basic education funds will be distributed to county districts. Of that, $445.7 million is based on the hold harmless rule. Thus, the per ADM average total basic education allocation for the county’s districts is $3,267 with $230 of that coming from the $33.8 million in “new” Act 35 funding. Note that Pittsburgh Public Schools represent 18 percent of the county’s total ADM but account for $154 million or 34 percent of the county’s hold harmless funding. Its $5,753 in hold harmless funding per ADM is more than double that of the average for the other 42 districts in the county.

Of the $33.8 million in new funding received by county districts, Pittsburgh Public Schools will receive the most ($7.5 million or 22 percent of total and $283 per ADM which is 23 percent above the county average of $230). Meanwhile, the Avonworth School District with its 1,660 ADM will receive the smallest amount ($182,809, or 0.5 percent of the new funding and less than half of its share of the county’s total ADM). Four districts besides Pittsburgh (McKeesport, Sto-Rox, Woodland Hills and Penn Hills) will receive more than $1 million. Besides Avonworth, only one other district, Riverview, will receive less than $200,000.

The amount of new funding awarded in the county through the formula has risen from $9.9 million in 2015-16, or by 240 percent, to this year’s amount. By looking at the changes in funding received by county districts in that time period we can see how the various formula components affect the final allocation.

Since multiple factors with various weights are in the formula, it is not as simple as assuming that districts with the greatest gains or losses in enrollment will see the largest or smallest additional funding. Based on the changes in enrollment from 2015-16 through 2018-19. South Fayette ranked 1st (enrollment increased 7 percent) and Wilkinsburg ranked 43rd (enrollment decreased 9 percent). But in ordering the districts in percentage terms of how much their share of total distribution from the new money changed, South Fayette ranks just 5th (its new money per ADM rose from $51 to $193—278 percent) and Wilkinsburg ranks 20th (its new money per ADM rose from $127 per ADM to $476—274 percent but a much larger dollar increase per ADM than South Fayette) despite falling enrollment. Clearly, the formula’s set of determining factors and their weights are designed to prevent changes in enrollment from being the deciding factor in changes to funding allocations.

In that regard note that in the four-year period Pine-Richland ranked 1st in increased percentage of Act 35 money received (its new money per ADM rose from $27 to $113—318 percent) while Northgate ranked 43rd (its new money per ADM rose from $90 to $221—145 percent). A look at the factors in the formula for the two districts in 2015-16 and 2018-19 shows that the value of acute poverty in Pine-Richland rose substantially boosting the district’s student-weighted average daily membership as calculated by the formula. Northgate had a decrease in poverty and in its local effort capacity index. Both districts had slight decreases in enrollment.

One thing is certain. The resources required for record-keeping and data-gathering for each of the 500 districts necessary to carry out the calculations for the incredibly complicated formula scheme are enormous and subject to significant data limitations and reliability. The statistical difficulties and anomalous results will become ever more problematic and subject to criticism as the amount of funding allocated rises over time. It should be possible to design a simpler, straightforward way of allocating funds.

Allegheny County School Districts: Performance and Cost Comparisons

Summary: Allegheny County’s 43 school districts run the gamut from having some of the state’s top rankings in terms of academic achievement to having some of the lowest rankings. This Policy Brief identifies the best and the worst performers and compares the cost per pupil for each group. The findings show once again that arguments about inequitable and inadequate funding are largely a diversionary tactic to avoid discussing real solutions to address grossly deficient academic achievement.

 

There are 500 school districts in Pennsylvania. But counting charter schools and occupation training centers reporting adequate test score data, the count of rankable LEAs (local education agencies) was 593 in the 2016-2017 school year. A few of the state’s traditionally designated public school districts failed to provide adequate timely data to be ranked for the 2016-2017 school year by the “School Digger” ranking service.

This analysis looks at the 43 regular school districts in Allegheny County in terms of scholastic achievement ranking and the per pupil cost as reported by the Pennsylvania Department of Education. The ranking of charter schools in the county will be the subject of a future analysis.

Allegheny County’s 43 school district achievement rankings range from the very top to the very bottom of the 593 ranked LEAs. Two districts (Duquesne, 586th and Wilkinsburg, 563rd) were in the bottom 5 percent. Nine districts were in the lowest 20 percent with seven more in addition to Duquesne and Wilkinsburg: Clairton (555th) McKeesport (534th), Penn Hills (522nd), Pittsburgh (477th), Cornell (480th), Highlands (478th) and Steel Valley (474th). Note that Sto-Rox, West Mifflin, Woodland Hills, Shaler and East Allegheny were not ranked among the 593 LEAs because of insufficient data. However, based on its high school ranking, Sto-Rox would likely be in the lowest 20 percent of districts as well. Eighteen districts including three of those that were not-ranked but had poor high school rankings were in the bottom 50 percent of schools. That means 24 districts are in the top 50 percent. There is no ranking information available for East Allegheny although the test scores that are available suggest it would be near the 50 percent cut off.

At the other end of the performance the county is in very good shape in terms of districts ranking very high. Two districts were in the top one percent, South Fayette (3rd) and Mt. Lebanon (4th). Mt. Lebanon’s Markham K-5 was the number one ranked elementary school, Jefferson Middle was the 3rd-ranked middle school and the high school was ranked 7th. With the addition of five more districts to Mt. Lebanon and South Fayette there were a total of seven in the top five percent. These five include: Pine Richland (6th), Upper St. Clair (8th), Fox Chapel (12th) Hampton (14th) and North Allegheny (17th). Bear in mind that in the top five percent the averaged total scores are very closely bunched together.

Just as impressive, 17 Allegheny County districts are in the top 20 percent of the 593 ranked LEAs in Pennsylvania. The 17 districts include, in addition to the seven districts in the highest five percent, Moon (37th), West Jefferson (45th), North Hills (46th) and Quaker Valley (51st)—putting these four in the top 10 percent—plus Avonworth (62nd), Montour (66th), Bethel Park (70th), Plum Boro (76th), West Allegheny (80th) and Riverview (112th).

Thus, 16 percent of Allegheny County districts are in the state’s top 5 percent and 40 percent of the 43 districts are in top 20 percent—meaning the county is extremely well represented in the share of districts performing at high levels academically.

At the same time, 5 percent of the county districts in the bottom five percent and 21 percent of its districts were in the bottom 20 percent. Thus, for the lowest ranking districts, the percentage in the county matches closely the shares of ranked LEAs.

The 17 school districts falling between the top 20 percent rank and the bottom 20 percent rank had rankings covering a very wide range from the highest of 128th at Chartiers Valley to the lowest at Steel Valley’s with its 452nd ranking.

In light of all the concern expressed in some quarters about inequitable school funding, the question is: How much do the best and lowest Allegheny County ranked districts spend per pupil? Financial data, including spending and the ADM are available from the Department of Education. ADM is the average daily membership. This number includes charter school students from the district for whom the district is financially responsible.

The two top ranked Allegheny County districts, South Fayette and Mt. Lebanon, had per ADM current (not including capital outlays) spending in the 2016-2017 school year of $13,511 and $14,977, respectively. The state average for that year was $16,447. Of the others Pine Richland’s spending per pupil was $14,916, Upper St. Clair spent $16,148, Hampton spent $14,970, North Allegheny spent $15,950 with Fox Chapel the highest spender in the top five percent group at $21,737. The average spending for the seven best scoring districts is just $16,068—lower than the state average even with Fox Chapel’s very high outlier figure. Excluding Fox Chapel the other districts averaged $15,123, well below the state average and the two highest rank districts spent an average of only $14,244.

Meanwhile, the other 10 districts, in addition to the seven in the top five percent, had average student spending of $16,690. Riverview was highest at $20,343 and West Jefferson lowest at $14,089. These 10 districts had higher average spending than the seven districts in the top 5 percent of ranked LEAs and slightly above the state average per ADM expenditures.

On the other hand, the story for the districts with worst academic performance in the county is quite different. Spending for the two districts in the bottom five percent was $19,982 at Duquesne and $25,016 for Wilkinsburg.

Continuing with the other seven that ranked in the bottom 20 percent: Clairton spent $16,722, McKeesport ranked spent $13,602, Penn Hills spent $17,280, Cornell spent $19,876, Highlands spent $15,689, Pittsburgh spent $22,282 and Steel Valley spent $18,107. The seven districts ranked in the bottom 20 percent of LEAs spent an average of $18,728, with two districts over $20,000 and two more over $19,000. Only McKeesport and Highlands were below state average spending.

It should be clear by this point that the very worst-performing districts are not being shortchanged for resources. And it is also clear that all but one of the seven very best performing and top-ranked districts spent less than the state average and far less than the average for the weakest performing and lowest ranked districts.

It is time for some honesty from those who continually claim in most vociferous terms that school funding is unfair and that more money is needed. The problems with poor quality education among school districts in Allegheny County are not caused by a lack of funding. People worried about poor performing schools should look for other causes. That is if they are truly concerned about educational achievement and not just diverting attention away from the utter failures to correct massive problems that have nothing to do with school funding.

Pennsylvania’s Prevailing Wage Law Needs to Go

Summary: Earlier this month Michigan repealed its prevailing wage law. As the Michigan Senate majority leader said “the time has come to eliminate this outdated law and save our taxpayers money.” Michigan did the right thing by shedding this union-backed wage mandate. Now it’s time for Pennsylvania to do the same.

 

State-level prevailing wage laws require the paying of the local wage (typically the union rate) and benefits on government-financed construction projects. Prevailing wage laws (Davis-Bacon at the federal level) were enacted to protect local labor from cheap migrant labor. Pennsylvania’s 1961 law requires all projects of $25,000 or more to pay workers the prevailing wage. With Michigan repealing its 1965 law, there are now 24 states without a prevailing wage law with five of those states—Indiana, West Virginia, Arkansas, Kentucky and now Michigan—repealing their laws since 2015. Note that Michigan, West Virginia and Kentucky have also passed right-to-work laws in the last few years.

The prevailing wage is the local rate as determined by the Department of Labor and Industry (DLI). Prevailing ages are determined for the county where the work is done. In subchapter E of the Prevailing Wage Act, § 9.105 Determination of classification and general prevailing minimum wage rates, the guidance for determining the prevailing wage is stated as follows.

(a) For the purpose of making a determination of the general prevailing minimum wage rates in the locality in which the public work is to be performed for each craft or classification during the anticipated term of the contract, the Secretary may ascertain and consider the wage rates and employe (sic) benefits established by collective bargaining agreements.
(b) If a bona fide collective bargaining agreement has expired by the terms thereof, the Secretary may ascertain and consider the wage rates and employe (sic) benefits established thereby until a new bona fide collective bargaining agreement, as defined in § 9.102 (relating to definitions), has been executed.
(c) The Secretary may also consider the following:
(1) Information obtained from Federal agencies charged with the administration of labor standards provisions of Federal acts applicable to contracts covering contractors and subcontractors on public building and public work and on building and work financed in whole or in part by loans and grants of the United States, within the locality.

Nowhere does the law explicitly prevent using market wages in the determination. But in practice the use of wages established in collective bargaining agreements has been the determining factor. The use of federal standards would require above market wages as well. Then, too, the language in subparagraph (b) clearly suggests that the Secretary focus on union wages.

Prevailing wage rates set by DLI are determined by the type of work being done and for each occupation. The hourly wage rate is specified as is the cash rate for fringe benefits if a benefits package is not being offered. Thus, there is a total mandated compensation rate. For example, in April 2016, East Stroudsburg University in Scranton, Monroe County (one of the state system schools) awarded a contract for some concrete work which was classified as a highway project. DLI provided a 13-page list of all occupations and listed the hourly rate plus fringe benefit rate. For a painter (class 3) the hourly rate (as of 5/1/2017) was $33.25 with a fringe benefit rate of $21.17 for a total rate of $54.42 per hour. Laborers (class 1) had the cheapest hourly rate on the list of $23.49 plus a fringe rate of $18.19 totaling $41.68 per hour.

It is important to point out that painters statewide were paid an average wage of $20.30 in 2017 and the average wage for construction laborers was $18.84. Average wage figures are taken from the Bureau of Labor report of Occupational Wage Statistics. In this case, painters on the university projects were paid 64 percent more than the state average wage for painters and laborers were paid 25 percent more than the state average.

Fringe benefits were also out of line. And in both prevailing wage cases, fringe benefits (64 percent of wages for painters and 77 percent of wages for laborers) were far above the norm for these occupations. Nationally, construction worker benefits are about 50 percent of wages.

Think of the manpower expended by the DLI in preparing a very long list of occupations and hourly wages and fringe rates for all the projects that get underway every year. Talk about the heavy hand of government and wasted resources.

The prevailing wage discourages competition for government contracts. If a non-union contractor bids on a government contract and must pay the prevailing wage, it may have some workers (those on the government project) earning more money than those working on a private contract. This could cause a large headache in trying to explain to its employees why some are being paid more than others for doing the same work although on different projects. Also think of the record keeping and reporting requirements a non-union contractor must face. The costs imposed by working on a government contract may not be worth submitting a bid.

The lack of full market competition and the inevitable higher costs created by prevailing wage may have been a contributing factor in Pennsylvania’s poorly rated infrastructure. If projects are unnecessarily expensive, government both the local and state level will be unable to carry out as many projects as they would in the absence of the extra expense created by prevailing wages.

According to PennDOT’s 2017 annual report, $2.57 billion was spent on 703 bridge and road projects. Even if the labor compensation savings from doing away with prevailing wage were just 10 percent—a low figure as most research places the savings at anywhere from 10 to 25 percent depending on the percent of a project’s cost that stems from labor compensations—PennDOT would have had an extra $257 million to spend on more projects. And this figure does not include the potential savings to be derived from the billions spent on local road projects and all the publically financed non-road building across the state each year. In a state that seems to struggle every year to fund its budget and where school districts are having to raise taxes steadily to meet obligations including for unnecessarily expensive building projects, hundreds of millions in savings would certainly be welcome.

Note that the Mackinac Center in Michigan estimates that the repeal of the prevailing wage law will save that state $400 million per year on construction of schools, roads, bridges, universities, town halls and other critical infrastructure.

The original intent of the prevailing wage laws may have been to protect local laborers from cheap migrant labor, but today the law simply shields union workers from having to compete with other qualified workers in their own community. The lack of full-throated competition for government contracts results in higher costs for taxpayers who ultimately pay for this excessive generosity to the unions—and to the companies who are union shops and get all the work.

Indeed, the prevailing wage law is cut from the same cloth as binding arbitration, teacher strikes, transit worker strikes and the lack of a right-to-work law. Pennsylvania is losing ground steadily as a result. The state’s workforce is declining while nationally the labor force is climbing and the number of the state’s residents working has also been sliding of late.

Moreover, Pittsburgh’s cost of government and taxes per resident are far above the national average for cities in its size range. And its schools are outrageously expensive per pupil while academic performance of a majority of students is abominable. What do the Pittsburgh and Pennsylvania situations have in common? A deeply entrenched anti-free market ideology that stifles growth.

What Was the Impact of the Parking Authority Rate Hikes?

Summary: A look at audited figures on the 2014 to 2017 Pittsburgh Parking Authority (PPA) facility rate increases and the taxes paid by the PPA and other parking facility owners to the City of Pittsburgh.

 

In June of 2014 the PPA board approved a series of annual rate hikes at its parking facilities (garages and attended lots). Downtown garages contain over 6,700 lined parking spaces. These were the first increases since 2004 and came from a recommendation in the City of Pittsburgh’s 2014 recovery plan. Since the city’s parking tax rate was (and is) locked in at 37.5 percent in Act 44 of 2009 the plan suggested requesting that the PPA increase parking rates to provide more revenue to the city.

The increases affected daily, evening/weekend, and lease parking rates. In August 2014 the increases were essentially across the board for daily (one hour or less, two hours or less, etc.), evening/weekend and lease rates. The increases for daily rate of one hour or less of parking were in the range of 11 to 33 percent. The increases in 2015 applied mostly to the daily rate for four to 24 hours and were in the range of six to nine percent as well as on lease rates. Thus the price increases were heavily front-loaded in 2014. A final increase that was to occur in 2017 on the daily four to 24 hours and on lease rates was rescinded. The increase in the evening/weekend rate was implemented.

For example, a patron parking in the Wood Allies Garage for eight hours saw the rate change from $9.75 to $12.00 in August 2014, to $13.00 in August 2015 and finally would have paid $14.00 in August 2017 but that increase did not occur. At the Mellon Square Garage a patron parking for eight hours saw the rate increase from $13.75 to $18.00, to $19.00 in the time frame.

In 2013—the year before the increases—PPA parking facility receipts totaled $29.2 million. Audited amounts for each year since then show receipts increased a total of $6.8 million (23 percent) by the end of 2017.

PPA Parking Facility Receipts, 2013-17

So how did the city benefit from the rate increases? Based on the tax revenue paid from parking receipts (27.27 percent—(0.375/1.375) the city’s collection of parking tax revenue from facility receipts rose from $7.9 million to $9.8 million ($1.8 million, or 23 percent) from 2013 to 2017. From 2013 to 2014 the tax from facility receipts rose 7.7 percent. After the additional price increase in 2015, the tax on facility receipts climbed 10.5 percent in 2015 over 2014. By 2017 gross PPA receipts had risen 23 percent. Bear in mind that total parking prices at PPA facilities had been raised by an average of around 25 percent. Thus, it appears the volume of taxable parking was essentially unchanged over the period.

Recall that the city also collects parking taxes from the PPA’s facilities but also from other public, private, and non-profit owners of lots and facilities. The city’s parking tax collections rose from $51.9 million to $58.6 million ($6.7 million, or 13 percent) from 2013 to 2017. This reflects over $200 million spent on parking in 2017. Since the taxes from PPA facilities accounted for $1.8 million of that change, $4.8 million came from non-PPA facilities. This 11 percent rise was lower than the increase in taxes from PPA facilities and resulted from a boost in parking prices or an increase in parking volume or some combination of both.

The parking tax is a key part of the funding of the city’s pensions. Under the 2010 plan that avoided a state takeover of pensions the city dedicated a stream of parking tax revenue. This year marks the first of 23 annual payments of $26.8 million in parking tax dollars, a doubling of what was being contributed from the tax the last several years to the pensions.

There were additional changes in the relationship between the PPA and the city during the years of the facility rate hikes. In 2015 parking meter rates changed and the PPA board amended its cooperation agreements with the city regarding revenue sharing from meters and the parking court as well as the payments in lieu of taxes made to the city. Overall, in the years 2013 to 2017 the total amount paid by the PPA to the city rose from $18.8 million to $29.8 million and the percentage of PPA expenses accounted for by payments to the city grew from 41 percent to 51 percent.

The city’s high parking tax is a significant part of the budget. It was 13 percent of total tax revenue and was the third largest tax in terms of dollars collected in 2017.

Pittsburgh MSA Out of Sync with U.S. Labor Market Performance

Summary: The April jobs numbers were released for the Pittsburgh Metropolitan Statistical Area (MSA) and the results are not too encouraging.  While growth was positive, it does not keep pace with the nation overall and underscores just how much work needs to be done to boost the area’s economy.

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Recently released labor force and employment data for the seven-county Pittsburgh metro area show the region trailing the nation for the April 2017 to April 2018 period.  In April 2018, the Labor Department survey of households show the region’s labor force tumbled by 17,600 (1.5 percent) and household employment (persons employed) slipped by 8,500 (0.7 percent) from the April 2017 level. Meanwhile, over the same 12-month period, the U.S. labor force climbed by 1,346,000 (0.8 percent) and the number of people counted as being employed rose 2,020,000 (1.3 percent).

Data from the Establishment survey, which counts the number of payroll jobs as opposed to the number of persons working, indicate private payroll employment in the Pittsburgh region rose 14,300 (1.35 percent), driven largely by gains in education and health, leisure and hospitality along with professional services. There were modest pickups in the goods sectors as well.

However, nationally, private payrolls jumped by 2,271,000 (1.8 percent) during the period, a 33 percent faster gain than the Pittsburgh region.  Note, too, that the national growth rate reflects both fast growing and slower growing states.  For instance, North Carolina comes in at 2.1 percent, Texas at 3.2 percent and Florida at 2.2 percent. These and other rapid-growth states are propelling the country to faster growth than the Pittsburgh MSA as well many other states.

The region’s 1,069,700 million payroll jobs represent the highest April level for the last ten years (2018-2008).  Still, the ten-year growth was only 4.7 percent or well under one half percent per year. The highest recorded amount in any month over the last decade occurred in November 2017 when the survey showed 1,078,200 people were on total private payrolls.

The April to April increase represents the smallest gain thus far in 2018.  In January, the 12-month increase was 17,500, for a rise of 1.7 percent, while the February gain was 15,700 and March posted a 12-month pickup of 15,300.

In the Pittsburgh MSA, leisure and hospitality added 3,500 new jobs from April 2017, a gain of just under three percent.  That was the smallest 12-month gain so far this year. The national April to April gain was 1.6 percent and has been gradually declining since January’s high rate of 2.09 percent.

Education and health provided the Pittsburgh region with the largest number of jobs, adding 5,400 jobs in April 2018 compared to the year ago reading—a 2.2 percent rise. Of this total, the health care and social services sector contributed 5,000 of the new jobs, while educational services added only 400.

Nationally, the education and health services sector did not grow quite as fast as the Pittsburgh area, increasing by only 1.87 percent.  The national growth lagged Pittsburgh’s in hospital, nursing facilities and social assistance.

The trade, transportation and utilities group was the weakest sector in the Pittsburgh MSA, losing 1,400 jobs over the year (-0.66 percent).  The monthly year-over-year losses stretch back to December 2017.  The decline was led by a fall in retail trade employment of 2,200—a drop of 1.8 percent.  That being said, not enough information is available to figure out exactly where the losses happened.  There was an increase in building materials and general merchandise stores but losses in food and beverage stores as well as in clothing and department stores.

Meanwhile, in stark contrast, the trade, transportation and utilities sector nationally had an April year-over-year pick-up of 1.11 percent.  It has been picking up steam as 2018 progressed ranging from a low of 0.58 percent in January to a high of 1.17 percent in March.  At the national level, retail trade is also picking up momentum.  After a decline in January, the year-over-year growth rates have been increasing every month since.

The April 2018 jobs and labor force numbers show that Pittsburgh lags the national labor market pace of improvement. As we have been writing for years, reducing taxes, repealing onerous regulations and curtailing the power of unions would go a long way boosting the business climate which in turn will lead to better labor market numbers. Curbing the desire and willingness to subsidize development and highly questionable ventures that should fund themselves would be a giant step toward relying on the free market to drive the economy.

Recent Population Changes in the Pittsburgh Metropolitan Area

Summary: A look at the new U.S. Census Bureau population estimates. From July 2016 to July 2017 population fell in the Pittsburgh metropolitan statistical area (MSA), Allegheny County, and the City of Pittsburgh.

 

Based on the Census population estimates as of July 1, 2017, the seven-county Pittsburgh MSA had 2,333,367 people (making it the 26th largest MSA in the U.S.). Over half of the MSA’s population, 1,223,048, is based in Allegheny County and one-quarter of the county’s population, 302,407, resides in the City of Pittsburgh.

Population estimates from July 2016 and July 2017 in the Pittsburgh MSA show a drop of 8,169 people, or 0.3 percent. The MSA was one of 11 in the nation with July 2017 population counts between 2 million and 2.5 million. Of that group nine MSAs gained population, including Cincinnati, Indianapolis and Kansas City. Besides Pittsburgh the only MSA in the group that lost population was Cleveland where there was a slight drop of 0.1 percent to just over 2 million people.

Meanwhile, population declined in six of seven counties in the Pittsburgh MSA, with Fayette and Armstrong posting losses of 0.7 percent, the largest percentage drops in the MSA. Allegheny County’s population count declined by 4,505, or 0.4 percent from 1,227,553 in July 2016. Butler County was the only county of the seven with a gain in population, rising from 186,207 to 187,108, or 0.5 percent.

The largest municipality in Allegheny County, Pittsburgh, lost 2,610 residents over the year ending in July 2017. But it is worth noting that the 2016 estimate for the city was revised upward in the latest data. Due to this upward revision to 305,017, the fall to the 2017 estimate of 302,407 made the year-over-year loss appreciably greater than it otherwise would have been.

As of this writing population estimates for the Pittsburgh MSA and Allegheny County have not been revised as was the case for Pittsburgh. But the trend from the 2010 Census through seven years of population estimates for the county and city seems clear—there were year-over-year increases until 2013 followed by year-over-year decreases for the county since then, and for the city with the exception of 2016. In terms of numbers of people, the latest population declines in Allegheny County and the city were larger than any of the other counties in the MSA.

With two years to go until the next official Census, what are the longer term demographic trends that might have an effect on the size and makeup of the local population? Two previous Institute studies are informative.

A decade ago an Institute report (2007-03) examined the components of Allegheny County’s population changes—natural increase (births minus deaths) along with net migration (net domestic migration plus net international migration)—from the 2000 Census forward. Deaths outpaced births in the county from 2000 to 2007 by 11,585. International migration was a positive 14,334 while domestic migration was a negative 59,753, resulting in a negative net migration of 45,419. Along with statistical anomalies for demographic events that cannot be accounted for—what the Census Bureau refers to as a residual—there was an actual total drop of 62,456 in the county’s population.

Replicating that study by comparing 2017 estimates to 2010 Census figures shows deaths continued to exceed births—but in this time period by only 3,264 and quite smaller than the 2000 to 2007 figure. The international migration over the period was 24,646, which was 10,000 greater than it was between 2000 and 2007. With domestic migration a negative 20,888, the resulting net migration was a positive 3,758. Factoring in the residual resulted in an overall decrease of 290 in Allegheny County’s population over the seven year period.

In a 2016 Policy Brief (Vol. 16, No. 24) we examined the population changes by age distribution of the City of Pittsburgh’s population. From the 2010 Census to the 2016 estimate the city gained in the age groups 20-34, 55-64 and 85 and over. The 20-34 age group accounted for over 30 percent of the total city population in both years, well above national averages for this age range. This is due in large part to the numbers of college and university students in the city.

The number of people in the 35-54 age group and the 0-19 age group fell from 2010 to 2016 and their share of total city population likewise fell. That strongly indicated that people in prime working years, likely with school age children, were leaving the city. Since that Brief there was a state Supreme Court decision upholding an arbitration award on police residency may have already had impact on these age groups.

In a bit of better news regarding population, the recent population losses in the county and the city are a small fraction of the declines from the 1990 through 2010 Census years. Nonetheless, the pace of natural increase and changing age distribution will hold important implications for the social and economic structure of the county and city in the years ahead.